While much of the commercial real estate market, both locally and nationally, has been in lockdown since the global banking collapse, the apartment segment is gaining momentum this summer.
Things were dead in 2008, said Brad Cooke, vice president of multifamily investments at Colliers International in Phoenix. But so far this year, 18 transactions of apartment communities with 100 or more units each have closed, and 10 more are under contract, he said.
“Our market is moving,” said Cooke.
Bobby Bull, managing director of investment sales for
“Now that we’ve had about 20 deals in the market and there’s agency financing out there, we’ll see more sales in fourth quarter and even more in 2010,” Bull said. “Multifamily is going to be the preferred commercial real estate investment vehicle going forward.”
Even though apartments are selling at prices far below the high marks of early 2007, buyers and sellers are lined up to do business for several reasons.
Unlike other commercial properties, multifamily investors have access to financing through the Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Association (Freddie Mac). Multifamily investment traffic also is moving in part because of the nature of publicly traded real estate investment trusts, or REITs, many of which own large apartment portfolios.
Because REITs by law are required to meet certain financial criteria and pay dividends to shareholders, many of them have been selling properties to increase equity and to position themselves for a new round of buying. Another factor driving apartment transactions is the growing cache of lender-owned properties that banks want off their balance sheets after taking them back at foreclosure auction.
One such deal is the Wachovia portfolio, which included three apartment complexes — one in Gilbert, one in
“We had 230 signed confidentiality agreements and 60 bidders,” Bull said.
Cooke represented one of the potential buyers. “We had a buyer with deep family money from the East,” Cooke said.
Though Cooke thought he had a strong offer, Transwestern and Eastdil settled on a bid by HSL Properties of Tucson, which paid $40.5 million for the three apartment properties. Total time of the deal: 180 days. Wachovia’s loan to SJ Management was for $81 million.
“HSL did their appraisal before the call-for-offer date, which made them even stronger,” said Bull, adding it was a sweet deal for the buyer.
Banks willing to sell distressed properties at much lower prices will drive more activity, said Nick Ingle, director of capital markets for
“Asset values have declined dramatically, allowing investors to acquire properties at a low basis. Obviously that is extremely attractive but not overly unique in a market governed by foreclosure forces. What is unique is that apartment properties are performing rather well relative to office and retail properties,” he said.
Ingle also cites the availability of Fannie Mae and Freddie Mac money for greasing the transaction wheel.
“We believe when the market is down is the best time to buy,” said Ken McElroy, principal of MC Cos. in
A year ago, when most commercial real estate investors were in a panic, McElroy and partner Ross McCallister shifted into a counter-market, aggressive mode, a strategy it has employed for years. Though the company as it exists today was formalized in 2001, the partners have been involved in real estate development and investment since 1985.
In 2001, MC put most of its eggs in the condo-conversion basket.
“We got out of that before the crash. Then we got into work force housing. What we call work force housing really is something that was very nice in the 1980s and is very well located but needs some updating,” McElroy said.
That’s why MC was interested in Wickertree, the 226-unit complex in
Aimco has been selling assets across the country in response to lackluster stock performance this year. The company cited declining occupancy rates and rents for a 48 percent drop in funds for operations in second-quarter 2009 compared with the same time period last year.
McElroy said many other larger apartment REITs are selling assets in inland markets in order to invest more heavily on the East and
“There’s some nice properties being marketed (here) now. Wickertree had exactly what we were looking for,” he said.
MC paid $9.5 million for Wickertree with a down payment of nearly $2.4 million. The deal closed Aug. 24. With a 91 percent occupancy rate at closing, “this was a cash-flow play for us,” McElroy said.
The company is looking for more good deals, and so are plenty of others, Cooke said. “We have no problem finding buyers if you have a good property that is priced right,” he said.
Get Connected
MC Cos.: www.mccompanies.com
Colliers International: www.colliers.com
Transwestern: www.transwestern.net
Hendricks & Partners: www.hpapts.com
Apartment Sale Comparisons
Largest Sale 2007 (the largest apartment deal ever in Arizona): Bascom Portfolio
Sale Price: $428 million
Sale Date: June 2007
Properties: 12
Units: 5,178
Avg. Price Per Unit: $82,561
Avg. Grade of Property: Class B
Seller: Bascom Arizona
Seller Broker: Colliers International
Buyer: The Bethany Group, California
Buyer Broker: None
Largest Sale 2009: Wachovia REO Portfolio
Sale Price: $40.5 million
Sale Date: August 2009
Properties: 3
Units: 592
Avg. Price Per Unit: $68,412
Avg. Grade of Property: Class A
Seller: Wachovia (Wells Fargo)
Seller Broker: Transwestern, Eastdil
Buyer: HSL Properties, Tucson
Buyer Broker: None
Source: Colliers International
